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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2009

OR

For the Transition period from                to              

Commission File Number:  001-31569

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

1100 Canterbury Road

Shakopee, MN  55379

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:  (952) 445-7223

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES o  NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o  NO x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x   NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during

the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o  NO x

The aggregate market value of the shares of voting and non-voting common equity held by non-affiliates based on the price at which the Company’s common stock was last sold on the NASDAQ Global Market, on June 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter was approximately $15,454,000.

On March 18, 2010, the Company had 4,033,740 shares of common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement for its 2010 Annual Meeting of Shareholders, to be held on June 3, 2010, are incorporated by reference into Part III of this Form 10-K.

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CANTERBURY PARK HOLDING CORPORATION

FORM 10-K ANNUAL REPORT

FOR THE YEAR ENDED DECEMBER 31, 2009

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Item 1.   BUSINESS

(a) General Development of the Business

Canterbury Park Holding Corporation (the “Company”) conducts pari-mutuel wagering operations and hosts “unbanked” card games at its Canterbury Park Racetrack and card room facility (the “Racetrack”) in Shakopee, Minnesota.  The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”).  Unbanked card games, in which patrons compete against each other, are hosted in the card room at the Racetrack.  The Company also derives revenues from related services and activities, such as concessions, parking, advertising, admissions, programs, a recreational vehicle park and from other entertainment events held at the Racetrack.

The Company was incorporated under the laws of Minnesota on March 24, 1994, acquired the Racetrack on March 29, 1994, commenced seven day a week simulcast operations on May 6, 1994, and, beginning in May 1995, launched live horse racing and related pari-mutuel wagering on a seasonal basis, generally from early May to early September.  The Company opened the card room on April 19, 2000 with 43 tables and expanded to 50 tables (the maximum permitted by law) in 2001.  The ownership and operation of the Racetrack and the card room are significantly regulated by the Minnesota Racing Commission (the “MRC”).

The Company maintains a website at www.canterburypark.com.  Our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our periodic reports on Form 8-K (and any amendments to these reports) are available free of charge on our website.

(b) Financial Information About Segments

The Company divides its business into three segments: horse racing, card room and concessions.  The horse racing segment represents operations related to pari-mutuel wagering on simulcast and live horse races.  The card room segment represents operations of the card room, and the concessions segment represents food and beverage services for simulcast and live racing, the card room and during special events.  Further information regarding the Company’s business segments is set forth in Note 12 of the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K, and such information is incorporated herein by reference.

(c) Narrative Description of Business

(i)            Horse Racing Operations

The Company’s horse racing operations consist of year-round pari-mutuel wagering on simulcast horse races (“simulcasting”) and live thoroughbred and quarter horse races (“live meets”) held on a seasonal basis beginning in May and generally concluding in August or September.

Live Racing.

In 2009, the Racetrack hosted 62 days of live racing beginning May 15th and concluding August 30th.  The meet included 42 days of mixed thoroughbred and quarter horse racing and 20 days of thoroughbred only racing.  The 2008 live meet was 67 days long, beginning May 3rd and ending September 1st, and consisted of 43 days of mixed thoroughbred and quarter horse racing and 24 days of thoroughbred only racing.

Currently, Minnesota law requires the Company to schedule a minimum of 125 days of live racing annually, unless the Minnesota Horsemen’s Benevolent and Protective Association (the “MHBPA”) agrees to a lesser number of live racing days.  Since 1995, the MHBPA has agreed to waive the 125-day requirement and has allowed the Company to run a live meet of at least 50 days each year.  After 2010, no assurance can be given that the MHBPA will agree to a shorter live meet than the 125-day statutory minimum.  If the MHBPA does not agree to a live meet shorter than 125 days, the Company’s operations could be adversely impacted by a

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decrease in the daily purses, potential reduction in quality of horses, lower attendance, lower overall handle and increased operating expenses.

Simulcasting.

Simulcasting is the process by which live horse races held at one facility (the “host track”) are transmitted simultaneously to other locations that allow patrons at each receiving location (the “guest track”) to place wagers on races transmitted from the host track.  Monies are collected at the guest track and the information with respect to the total amount wagered is electronically transmitted to the host track.  All of the amounts wagered at guest tracks are combined into the appropriate pools at the host track with the final odds and payouts based upon all the monies in the respective pools.

The Company offers “full card” simulcast racing (broadcasting of another racetrack’s entire daily live racing program) from up to 20 racetracks per day, seven days a week, 363 days per year, including Churchill Downs, Hollywood Park, Santa Anita, Gulfstream Park, Belmont Park and Saratoga Racecourse.  In addition, races of national interest, such as the Kentucky Derby, the Preakness Stakes, the Belmont Stakes, and the Breeders’ Cup, supplement the regular simulcast program.  The Company regularly evaluates its agreements with other racetracks in order to offer the most popular simulcast signals of live horse racing that are feasible.

Under applicable provisions of federal and state law, in order to conduct simulcast operations either as a host or guest track, the Company must obtain the consent of the state’s regulatory authority and the organization which represents a majority of the owners and trainers of the horses who race at the Racetrack.  In Minnesota, such consent must be obtained from the MRC and the MHBPA.

(ii)           Card Room Operations

The card room is open 24 hours per day, seven days per week, offering two variations of unbanked card games: poker and table games.

Poker games, including Texas Hold ‘Em, 7-Card Stud and Omaha, with betting limits ranging between $2 and $60, are currently offered in the poker room.  A dealer, employed by the Company, regulates the play of the game at each table and deals the cards but does not participate in play.  In poker games, the Company is allowed to deduct a percentage from the accumulated wagers and impose other charges for hosting the activity but does not have an interest in the outcome of a game.  The Company may add additional prizes, awards or money to any game for promotional purposes.  The Company collects a “rake” of 5-10%, depending on the limit of the game, of each addition to the “pot” up to a maximum of $5.00 per hand as its collection revenue.  In addition, poker games offer progressive jackpots for most games.  In order to fund the jackpot pool, the dealer withholds $1.00 from each final pot in excess of the $15 minimum.

Table games, including Blackjack, Fortune Pai Gow, Let-It-Ride, Three and Four Card Poker, Ultimate Texas Hold ‘Em, and EZ Baccarat are currently offered in the card room.  The Company’s table games are required by law to be “unbanked.”  “Unbanked” refers to a wagering system or game where wagers lost or won in card games are accumulated into a player pool liability for purposes of enhancing the total amount paid back to winning players.  The Company may only serve as custodian of the player pool, may not have an active interest in any card game and does not recognize amounts that dealers “win” or “lose” during the course of play as revenue.  The primary source of card room revenue is a percentage of the wagers received from the players as compensation for providing the card room facility and services, referred to as “collection revenue”.  In addition, several table games offer a progressive jackpot.  The player has the option of playing the jackpot and has the opportunity to win some or all of the jackpot amount, depending upon their hand.

(iii)         Special Events

While pari-mutuel horse racing and card room operations are the Company’s principal businesses, the Company’s facilities are capable of being used for multiple purposes.  In an effort to more fully utilize the property and to generate additional revenues, the Company has increasingly used its grandstand, grounds and parking lot for special events and rentals.  While the use of the Company’s facilities for particular special events

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and purposes varies from year to year, the following are among the types of events and purposes for which the Company’s facilities have been used: snowmobile races, major arts and crafts shows, trade shows, concerts, fundraisers, automobile shows and competitions, vehicle and boat storage and private parties.

(iv)          Sources of Revenue

General.

The Company’s revenues are principally derived from card room operations, wagering on live and simulcast horse races and concession sales.  For the fiscal year ended December 31, 2009, revenues from card room operations represented 50.6% of total revenues, wagering on horse races generated 28.6% of total revenues and concessions revenue represented 13.2% of total revenues.

Card Room Operations.

The Company receives revenue from its card room, which operates 24 hours per day, seven days per week.  The Company currently receives collection revenue from poker and table games tables.  Under Minnesota law, the Company is required to pay 10% of the first $6 million of gross card room revenues towards purses for live horse racing at the Racetrack.  After meeting the $6 million threshold, the Company must pay 14% of gross card room revenues as purse monies.  Of funds allocated for purses, the Company pays 10% of the purse monies to the State of Minnesota Breeders’ Fund.  The remaining 90% of purse monies are divided between thoroughbred (90%), quarter horse (9%) and standardbred (1%) purse funds.

Pari-mutuel wagering — General.

In pari-mutuel wagering, bettors wager against each other in a pool, rather than against the operator of the facility or with preset odds.  From the total amount wagered (“handle”), the Minnesota Pari-Mutuel Horse Racing Act (the “Racing Act”) specifies the maximum percentage, referred to as the “takeout,” which may be withheld by the Racetrack, with the balance returned to the winning bettors.  The takeout constitutes one of the Racetrack’s primary sources of operating revenue.  From the takeout, funds are set aside for purses and paid to the State of Minnesota for pari-mutuel taxes and the Minnesota Breeders’ Fund (the “MBF”), which is a fund apportioned by the MRC among various purposes related to Minnesota’s horse breeding and horse racing industries.  The balance of the takeout remaining after these deductions is commonly referred to as the “retainage.”

The various forms of pari-mutuel wagering can be divided into two categories: straight wagering pools and multiple wagering pools, which are also referred to as “exotic” wagering pools.  Examples of straight wagers include: “win” (a wager on one specific horse to finish first); “place” (a wager on one specific horse to finish first or second); and “show” (a wager on one specific horse to finish first, second or third).  Examples of exotic wagers include: “daily double” (a wager in which the bettor selects the horses that will win two consecutive races); “exacta” (a wager in which the bettor selects the horses that will finish first and second in a race, in order); “trifecta” (a wager in which the bettor selects the horses that will finish first, second and third in a race, in order); and “pick six” (a wager in which the bettor selects the horses that will finish first in six consecutive races).

The amount of takeout earned by the Company depends on where the race is run and the form of wager (straight or exotic).  Net revenues from pari-mutuel wagering on live races run at the Racetrack consist of the total amount wagered, less the amounts paid (i) to winning patrons, (ii) for purses, (iii) to the MBF and (iv) for pari-mutuel taxes to the State of Minnesota.  Net revenues from pari-mutuel wagering on races being run at out-of-state racetracks and simulcast to the Racetrack have similar expenses but also include a host fee payment to the host track.  The host fee, which is calculated as a percentage of monies wagered (generally 2.50% to 4.50%), is negotiated with the host track and must comply with state laws governing the host track.

Wagering on Live Races.

The Racing Act establishes the maximum takeout that may be deducted from the handle.  The takeout percentage on live races depends on the type of wager.  The total maximum takeouts are 17% from straight

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wagering pools and 23% from exotic wagering pools.  From this takeout, Minnesota law requires deductions for purses, pari-mutuel taxes and the MBF.

While the Racing Act provides that a minimum of 8.4% of the live racing handle is to be paid as purses to the owners of the horses, the size of the purse is subject to further agreement with the horsepersons’ associations.  The MBF receives 1% of the handle.  The pari-mutuel tax applicable to wagering on all simulcast and live races is 6% of takeout in excess of $12 million during the twelve-month period beginning July 1 and ending the following June 30.

The following table sets forth the percentage distribution of each dollar wagered on live races at the Racetrack, as established by the Racing Act, and the Racetrack’s retainage for the years ended December 31, 2009 and 2008:

(1)           Minnesota law provides that the 8.40% purse payment is a minimum.  The actual percentage, if any, above the minimum is determined between the Racetrack and the MHBPA.  Any additional amounts paid for purses decrease the Racetrack’s retainage.

(2)           The current pari-mutuel tax structure exempts the first $12 million of takeout during a statutorily mandated twelve-month period.  The total pari-mutuel tax liability for a twelve-month period will depend upon the total takeout during that period.  There was no pari-mutuel tax liability in 2009 and therefore, it is not factored into the above table.

Wagering on Simulcast Races.

The amount of takeout from simulcast wagering is determined by the laws of the state in which the host track is located.  In addition, the Racing Act establishes a minimum that must be set aside from simulcasting for purse payments on racing within Minnesota.  Different amounts are deducted for purses from the takeout depending on whether simulcasting occurs during the “Racing Season,” a statutorily defined 25-week period beginning in early May each year, or outside of the Racing Season.  If simulcasting occurs during the Racing Season, the amount set aside for purses further depends on whether the simulcasting is part of a full racing card that occurs during the part of the day that live races are conducted at the Racetrack.  For races that are part of a full simulcast racing card that takes place within the time of live races at the Racetrack, the amount reserved for purse payout is 8.4%.  For simulcasting conducted during the Racing Season that does not occur within the time period of live races, the purse is equal to 50% of the takeout remaining after deductions for pari-mutuel taxes, payments to the MBF and payments to the host racetrack for host track fees.  For simulcasting conducted outside of the Racing Season, the amount that must be contributed to the purses is 25% of the takeout after deducting pari-mutuel taxes, payments to the MBF and host fee payments to the host racetrack.

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The following table sets forth the approximate percentage distribution of each dollar wagered for races simulcast at the Racetrack and the Racetrack’s retainage for the years ended December 31, 2009 and 2008:

(1)           This amount will depend upon the takeout at the host racetrack. This percentage is determined by local and state law applicable to the host track and ranges from 75.0% to 85.0%.

(2)           The current pari-mutuel tax structure exempts the first $12 million of takeout during a statutorily mandated twelve-month period.  The total pari-mutuel tax liability for a twelve-month period will depend upon the total takeout during that period.  There was no pari-mutuel tax liability in 2009 and therefore, it is not factored into the above graph.

(3)           Although Minnesota law specifies purse percentages, the actual percentage is determined by agreement between the Racetrack and the MHBPA.  For the year ended December 31, 2008, the MHBPA allowed a 1.3% expense deduction, and in 2009, the expense deduction allowed was 1.6%.  No expense deduction is expected for 2010.

(4)           Payments to the host track generally range from 3.0% to 4.5% of total handle, subject to negotiation with each host track.  For purposes of this table, the host track fee is assumed to be 3.8%.

Concessions Revenue.

The Company earns revenue from food and beverage sales in its restaurant, group catering areas and numerous concession stands located throughout the facility.  Food and beverage sales are offered during live and simulcast racing in the card room and during special events.

Other Revenue.

The Company generates cash revenues from the receipt of admission and reserved seating charges, preferred and valet parking and the sales of various daily pari-mutuel publications.  Additional revenues are derived from the operation of an RV Park during the summer months and the use of the Racetrack facilities year-round for special events such as concerts, trade and craft shows, snowmobile racing, business meetings, private parties, horse expositions and sales, boat and automobile storage and community events.  The Company also generates revenue from providing advertising signage space, similar to that appearing at many sports stadiums, and leasing excess parking lot space for various automotive activities and vehicle storage.

(v)           Competition

From 1994 through 2004, the Company was the only racetrack licensed to operate in the State of Minnesota.  In January 2005, the MRC granted a license to the North Metro Harness Initiative, LLC (“NMHI”) to construct and operate a harness racetrack in Columbus Township, Anoka County, MN.  Columbus Township is approximately 50 miles from Canterbury Park.  This license authorized NMHI to engage in pari-mutuel wagering on live and simulcast racing for standardbred (harness) horses.  NMHI commenced operations as Running Aces Harness Park (“Running Aces”) in April 2008.  In addition, on completing a 50-day live meet as required by Minnesota law, the MRC granted Running Aces a license to operate a card room, and Running Aces began card room operations in competition with the Company in June 2008.

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The Company also competes with other forms of gaming, principally casino-style gambling including slots, table games, and poker offered at numerous tribal casinos located throughout the State of Minnesota.  In particular, the largest casino in Minnesota is located approximately four miles from the Racetrack.  More recently, unbanked card games have also become available at some tribal casinos.  The Company also faces increasing competition from offshore and out-of-state simulcast operations offering Internet and telephone account home wagering systems to Minnesota residents, although Minnesota regulatory authorities consider such wagering to be illegal.

The Company further competes with other forms of entertainment in the Minneapolis-Saint Paul metropolitan area, including a wide range of live and televised professional and collegiate sporting events.  In addition, live horse racing competes with a wide variety of summer attractions, including amusements parks, sporting events and other local activities.

The Company competes with racetracks located throughout the United States in securing horses to run at the Racetrack.  Attracting owners and trainers is largely dependent on the ability to offer large purses.  The Company experiences significant competition for horses from racetracks located near Des Moines, Iowa and Chicago, Illinois, both of which offer substantially larger purses than the Company.  This competition is expected to continue for the foreseeable future.

(vi)          Regulation

General.

The ownership and operation of the Racetrack in Minnesota is subject to significant regulation by the MRC under the Racing Act and the rules adopted by the MRC.  The Racing Act governs the allocation of each wagering pool to winning bettors, the Racetrack, purses, pari-mutuel taxes and the MBF and empowers the MRC to license and regulate substantially all aspects of horse racing in the State.  The MRC, among other things, grants operating licenses to racetracks after an application process and public hearings, licenses all employees of a racetrack, jockeys, trainers, veterinarians and other participants, regulates the transfer of ownership interests in licenses, allocates live race days and simulcast-only race days, approves race programs, regulates the conduct of races, sets specifications for the racing ovals, animal facilities, employee quarters and public areas of racetracks, regulates the types of wagers on horse races, and approves significant contractual arrangements with racetracks, including management agreements, simulcast arrangements, totalizator contracts and concessionaire agreements.

A federal statute, the Interstate Horse Racing Act of 1978, also provides that a racetrack must obtain the consent of the group representing the horsepersons (owners and trainers) racing the breed of horses that race a majority of the time at the racetrack, and the consent of the state agency regulating the racetrack, in order to transmit simulcast signals of its live races or to receive and use simulcast signals from other racetracks.  The Company has obtained the consent of the MHBPA and MRC for receiving and sending simulcast signals.

Issuance of Class A and Class B Licenses to the Company.

The Company holds a Class A License, issued by the MRC, which allows the Company to own and operate the Racetrack.  The Class A License is effective until revoked, suspended by the MRC or relinquished by the licensee.  Currently, the fee for a Class A License is $253,000 per fiscal year.

The Company also holds a Class B License, issued by the MRC, that allows the Company to sponsor and manage horse racing on which pari-mutuel wagering is conducted at its Class A licensed racetrack and on other horse races run at out-of-state locations as authorized by the MRC.  The Class B License is renewable each year by the MRC after a public hearing (if required by the MRC).  Currently, the fee for the Class B License is $500 for each assigned race day on which live racing is actually conducted and $100 for each day on which simulcasting is authorized and actually takes place.

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Limitation on the Number of Class A and Class B Licenses.

Pursuant to the Racing Act, so long as the Racetrack maintains its Class A License, no other Class A License may be issued to operate a racetrack in the seven-county metropolitan area (the counties of Hennepin, Ramsey, Washington, Scott, Dakota, Anoka and Carver), except the MRC may issue an additional Class A License within the seven-county metropolitan area, provided that the additional license may only be issued for a facility which, among other conditions, is located more than 20 miles from the Racetrack, contains a track no larger than five-eighths of a mile in circumference, and is used exclusively for standardbred (harness) racing.  An additional Class A license was issued to Running Aces on January 20, 2005 (see “Competition” above).  However, as long as the Company holds its Class A License, only the Company may own and operate a racetrack in the seven county metropolitan area where thoroughbred horses and quarter horses may be raced.

Limitation on Ownership and Management of an Entity, which holds a Class A License and/or Class B License.

The Racing Act requires prior MRC approval of all officers, directors, 5% shareholders or other persons having a present or future direct or indirect financial or management interest in any person applying for a Class A and Class B license, and if a change of ownership of more than 5% of the licensee’s shares is made after an application is filed or the license issued, the applicant or licensee must notify the MRC of the changes within five days of this occurrence and provide the information required by the Racing Act.

Card Room Regulation.

The MRC is also authorized by law to regulate card room operations, and the law requires that the Company reimburse the MRC for its actual costs, including personnel costs, of regulating the card room.  For fiscal years ended December 31, 2009, and 2008, the Company paid $150,000 and $116,000, respectively, to the MRC as reimbursement for costs of regulating card room operations.

The MRC issued an additional Class B License to the Company on January 19, 2000 that authorizes the Company to host unbanked card games.  The Class B License is renewable each year by the MRC after a public hearing (if required by the MRC).  Currently, the Class B License Fee of $10,000 per calendar year is included in the Class A License Fee of $253,000 per calendar year.

Local Regulation.

The Company’s operations are subject to state and local laws, regulations, ordinances and other provisions affecting zoning, public health and other matters which may have the effect of restricting the uses to which the Company’s land and other assets may be used.  Also, any development of the Racetrack site is, among other things, subject to applicable zoning ordinances and requires approval by the City of Shakopee and other authorities, and there can be no assurance such approvals would be obtained if any development was undertaken.

(vii)        Legislation

As discussed in our previous filings with the SEC, the Company has supported over the past several years, and is currently supporting in the 2010 session of the Minnesota Legislature, legislation that would authorize slot machines and other games at the Racetrack (referred to as a “Racino”).  Based on the success of several Racinos in other states, we continue to believe that if a Racino was authorized at the Racetrack on similar terms to legislation approved in other states, it would enhance horse racing with increased purses, provide growth and development opportunities for the Company, and provide significant new tax revenues for state and local governments.

The effort to obtain legislative authority for initiatives favorable to the Company has required, and will continue to require, substantial expenditures.   Due to the inherent uncertainty of the outcome of legislative activities, there can be no assurance that any bills favorable to the Company’s interests will be enacted into law, and it is possible bills adverse to the Company could be enacted.

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(viii)       Marketing

The Company’s primary market is the seven-county Minneapolis-Saint Paul metropolitan area plus the two counties to the south of the Racetrack.  Current demographic information indicates that approximately 2.2 million adults age 18 and older reside within the primary market.  The City of Shakopee, located in the southwestern portion of the metropolitan area, is one of the fastest growing communities in the region, and Scott County is one of the fastest growing counties in the country.

To support its pari-mutuel horse racing and card room businesses, the Company conducts year-round marketing efforts to maintain the loyalty of live racing and simulcast patrons and attract new racing and card room customers.  The Company utilizes newspapers and television advertising, the Internet, other print media, radio and direct mail.  Often, the Company combines its marketing efforts to communicate the excitement of both wagering on horse racing and card playing.  In addition to its regular advertising program, the Company conducts numerous special promotions and handicapping contests to increase simulcast patronage and maintains successful pari-mutuel player and card room player rewards programs.  In addition, the development and maintenance of a customer database over the past several years has enabled the Company to effectively utilize direct mail advertising.

Because wagering on horse racing and playing poker and table games are more complex than many other forms of gaming, such as slot machines or various lottery products, the Company continues to develop and conduct various educational programs, such as complimentary poker and table games lessons, tours of the Racetrack, wagering and handicapping classes and contests that it believes will make pari-mutuel wagering on horse racing and card playing more understandable to the general public.

(ix)          Employees

At March 25, 2010, the Company had 269 full-time employees and 246 part-time employees.  On a seasonal basis, the Company adds approximately 120 full-time and 250 part-time employees for live racing operations from early May until early September.  The Company’s management believes its employee relations are good.

(x)           Executive Officers

The executive officers of the Company, their ages and their positions with the Company are as follows:

Randall D. Sampson has been President and Chief Executive Officer since the formation of the Company in March 1994 and General Manager since September 1995.  He has been active in horse industry associations, currently serving as Vice President and Director of the Thoroughbred Racetracks of America and is a past President of the Minnesota Thoroughbred Association.  Mr. Sampson also currently serves as a director of Communications Systems, Inc. (NASDAQ:JCS), a manufacturer of telecommunications and data communications products based in Hector, Minnesota.  Mr. Sampson is the son of Curtis A. Sampson, the Company’s Chairman of the Board and the beneficial owner of approximately 22% of the Company’s common stock.

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David C. Hansen joined the Company in July 2001 as Vice President of Finance and Chief Financial Officer.  From 2000 to 2001, Mr. Hansen served as Director of Accounting for Prairie Meadows Racetrack and Casino in Altoona, IA, one of the nation’s first Racino operations.  He served as Controller and later Director of Finance at Treasure Island Resort & Casino, in Red Wing, MN, from 1993 until 2000.  Mr. Hansen earned his CPA certification in 1983.  Mr. Hansen is a member of the Minnesota Society of Certified Public Accountants, the Hospitality Financial and Technology Professionals Association, and the Financial Executives International.

Mark A. Erickson has been Vice President of Facilities since May 1997, serving as the Racetrack’s Director of Facilities since April 1994.  From 1992 to 1994, Mr. Erickson served as Maintenance Supervisor for the Mall of America, supervising the interior maintenance for one of the largest shopping malls in North America.  Mr. Erickson was Master Electrician for Canterbury Downs from 1986 to 1992, supervising the installation and maintenance of all electrical equipment.

Michael J. Garin was recently named Vice President of Non-Gaming Operations in October 2009.  Prior thereto, Mr. Garin served as the Vice President of Hospitality since May of 1997.  He also previously served as President of Canterbury Park Concessions, Inc. from September 1995 to May of 1997.  From 1993 to 1994, Mr. Garin served as Food & Beverage Supervisor for Little Six, Inc., one of the largest tribal casino operations in the country.  Mr. Garin was President of MMR Vending, Inc., a regional vending company, from 1988 to 1992.  Prior to 1988, he was a Regional Director at General Mills Restaurant Group overseeing seven restaurants in three states.  Since 2007, Mr. Garin has served on the Board of Directors for the Minnesota Restaurant Association.

Item 1A.  RISK FACTORS

The Company is subject to risk factors that may affect our operating results.  Such risk factors include, but are not limited to, the matters discussed below as well as the additional risks discussed under Forward Looking Statements on page 27 of this Form 10-K for additional risks to which the Company is exposed.

We face significant competition from other gaming operations that could have a material adverse effect on our operations.

We face intense competition in our market, particularly competition from tribal casinos.  Such facilities have the advantage of being exempt from certain state and federal taxes and state regulation of indoor smoking.  We also compete with illegal Internet wagering on horse races, other forms of gambling, other forms of entertainment and other racetracks throughout the country as previously discussed under Competition above.

In early 2005, the MRC granted a license to NMHI to construct and operate a harness racetrack in Columbus Township, Anoka County, MN, which is approximately 50 miles from the Racetrack.  This license authorized NMHI to engage in pari-mutuel wagering on live and simulcast racing for standardbred (harness) horses.  This racetrack opened in April of 2008 as Running Aces Harness Park (“Running Aces”).  In addition, Running Aces began card room operations in June of 2008.

We expect competition for our existing and future operations to increase both from Running Aces and existing tribal casinos.  In addition, several of our tribal gaming competitors have substantially larger marketing and financial resources than we do.  We are unable to predict with any certainty the effects of existing and future competition on our operating results.

A downturn in general economic conditions can adversely affect our results of operations.

Consumer demand for entertainment is particularly sensitive to downturns in the economy and the corresponding impact on discretionary spending on leisure activities.  Changes in discretionary consumer spending or consumer preferences could be driven by factors such as perceived or actual general economic conditions including housing prices and the availability of credit; high energy, fuel and food costs; the increased cost of travel; the potential for bank failures; the weakening job market; perceived or actual disposable consumer income and wealth; fears of recession and changes in consumer confidence in the economy; or fears of war and future acts of terrorism.  These factors could reduce consumer demand for the leisure activities we offer, thus imposing practical limits on pricing and harming our operations.  Our revenues and profitability have

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been adversely affected by these factors during the last two years and are likely to be adversely affected in 2010.

We are subject to extensive regulation from gaming authorities that could adversely affect us.

The ownership and operation of our Racetrack and card room are subject to significant regulation by the MRC under the Racing Act and the rules adopted by the MRC.  The MRC has the authority to impose increases in the Class A and Class B license fees.  In addition, State law requires that we reimburse the MRC for its actual costs of regulating the card room, including personnel costs.  Increases in these licensing and regulatory costs could adversely affect our results of operations.

Decisions by the MRC in regard to any one or more of the following matters could also adversely affect the Company’s operations: the granting of operating licenses to Canterbury Park and other racetracks after an application process and public hearings; the licensing of all employees of a racetrack, jockeys, trainers, veterinarians and other participants; regulating the transfer of ownership interests in licenses; allocating live race days and simulcast-only race days; approving race programs; regulating the conduct of races; setting specifications for the racing ovals, animal facilities, employee quarters and public areas of racetracks; changes to the types of wagers on horse races; and approval of significant contractual agreements.

We are subject to changes in the laws that govern our business, including the possibility of an increase in gaming taxes, which would increase our costs, and changes in other laws may adversely affect our ability to compete.

Our operations and oversight by the MRC are ultimately subject to the laws of Minnesota and there exists the risk that these laws may be amended in ways adverse to our operations.  In particular, we are required to pay taxes and fees in addition to normal federal, state and local income taxes, and such taxes and fees are subject to increase at any time.  From time to time, state and local legislators and officials have proposed changes in tax laws, or in the administration of laws affecting our industry, such as the allocation of each wagering pool to winning bettors, the Racetrack, purses and the MBF.  In addition, poor economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes.  It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration of such laws.  Such changes, if adopted, could have a material adverse effect on our operations.

We are also subject to laws in Minnesota that affect businesses generally.  It is possible, as a result of the legislative process, that legislation directly or indirectly adverse to the Company may be enacted into law.

We Depend on Key Personnel.

Our future success will depend largely on the skills, efforts and motivation of Randall D. Sampson, our President and Chief Executive Officer, and other executive officers and key personnel, on whom we are highly dependent. Our inability to retain key personnel could have a material, adverse impact on our business, financial condition and results of operations.

Energy and fuel price increases may adversely affect our costs of operations and our revenues.

Our facility uses significant amounts of electricity, natural gas and other forms of energy.  Increases in the cost of electricity or natural gas negatively affect our results of operations.  In addition, energy and fuel price increases could negatively impact our operations by reducing disposable income of potential customers and decreasing visitation to our facility.

Item 1B.  UNRESOLVED STAFF COMMENTS

Not Applicable.

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Item 2.  PROPERTIES

General.

The Company’s facilities, which are owned and operated under the name “Canterbury Park,” are a modern complex of buildings and grounds, generally comparable to other major racetracks located throughout the country.  The Racetrack’s grandstand has a patron capacity of approximately 10,000 within enclosed areas and a maximum patron capacity of over 30,000 including outside areas around the grandstand.  The grandstand and most public outdoor areas contain numerous pari-mutuel windows, odds information boards, video monitors, concessions stands and other amenities.  The audio/visual system includes over 600 television monitors with most areas providing multi-screen viewing of the races.

The Racetrack is located approximately 25 miles southwest of downtown Minneapolis.  The area immediately surrounding the Racetrack consists of commercial and industrial buildings, farmland and residential areas.  The Racetrack is in reasonable proximity to a number of major entertainment destinations including:  Valleyfair, an amusement park about two miles from the Racetrack which annually attracts approximately more than one million visitors during the spring and summer; the Renaissance Festival, a seven-weekend late summer annual event attracting approximately 300,000 visitors, located about five miles from the Racetrack; and Mystic Lake Casino, located about four miles from the Racetrack, which draws approximately 5.2 million patrons annually.  The Mall of America, the largest enclosed shopping mall in the United States, which attracts more than 40 million visitors per year, is approximately 17 miles from the Racetrack.

Racing Surfaces.

The racing surfaces consist of a one-mile oval dirt/limestone track and a 7/8 mile oval turf course.  The dirt track includes a mile and one-quarter front stretch chute, a 6-1/2 furlong backstretch chute and a 3-½ furlong chute and is lighted for night racing.

Grandstand.

The grandstand is a modern, air-conditioned enclosed structure of approximately 275,000 square feet with a variety of facilities on six levels.  The lower level contains space for support functions such as jockey quarters, administrative offices, Racing Commission offices, first aid, mechanical and electrical rooms.  The track level includes pari-mutuel windows, restrooms, a variety of concession stands and other services as well as the card room, which occupies 22,000 square feet on the track level.  The mezzanine level contains 1,320 fixed seats in a glass-enclosed, air-conditioned area and an additional 3,000 seats located outside.  In addition to the seats, the mezzanine level contains pari-mutuel windows, restrooms, concession stands and other guest facilities.  A portion of the mezzanine level is currently being used as a simulcast center during live racing, and for banquets and other events during the off-season.  The kitchen level is an intermediate level located between the mezzanine and clubhouse floors.  It contains a full-service kitchen which supports a full dining menu for the track-side dining terraces on the clubhouse level and food preparation for the other concession areas.  The clubhouse level is a multi-purpose area serving as a simulcast center during wagering sessions on televised races, as well as a full-service dining area during the live racing season.  The clubhouse level includes 325 trackside tables, each equipped with a television set, with a total seating capacity of 1,200 patrons and an additional 1,000 seats are located in lounges located throughout the area.  The press box and officials’ level is located in the roof trusses over the clubhouse and contains work areas for the press, racing officials, closed-circuit television, photo finish and the track announcer.  In addition, the grandstand was structurally built to accommodate skyboxes under the press box/officials’ level, although none have yet been constructed.  Escalators and elevators are available to move patrons among the various levels within the grandstand.

Barn and Backside Facilities.

The stable area consists of 33 barns with a total of approximately 1,650 stalls.  In the stable area, there are 216 dormitory rooms for the grooms and others working at the Racetrack.  The stable area also contains a combination racing office and cafeteria/recreation building for stable personnel, two blacksmith buildings and a one half-mile training track.

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Parking.

Approximately 7,500 paved parking spaces are available for patron and employee automobiles at the Racetrack, including parking spaces that are reserved for handicapped patrons.  The Racetrack also has unpaved areas available for overflow parking for approximately 5,000 additional automobiles.  Areas are also reserved for bus parking.

RV Park.

The Company owns and operates a recreational vehicle (RV) park, located two miles from the Racetrack in Shakopee, Minnesota on approximately 29 acres adjacent to the Minnesota River.  The RV Park has 68 independent sites and 40 dependent sites, an indoor swimming pool, laundry facilities, game room and mini store.  In 2010, this property is being leased to an unaffiliated party, and it is expected the lessee will operate the RV Park similar to how it has been operated in the past, with sites being rented to horsemen participating in Canterbury’s racing operations, seasonal employees and the general public.

Undeveloped Land.

Approximately 100 acres of the 380 acres owned by the Company are not necessary for current operations.  This property could be sold in whole or in part, depending upon future opportunities.  The Company regularly evaluates other business activities and development opportunities that would maximize the use of the real estate surrounding the Racetrack and which would complement the Company’s primary businesses of horse racing and card room operations.  In June 2008, the Company announced that it had entered into a letter of intent with RED Development, LLC, a Kansas City based retail developer, to be its exclusive partner in a proposed retail and entertainment development on part of the Company’s property.  Although the Company has remained in communication with RED Development, due to the prolonged economic recession, the project was put on hold as retailers curbed their expansion efforts.

Use of Properites.

All three Company’s operating segments are housed in the Grandstand and use the parking facilities.  The racing surfaces, barns, and backside facilities are used exclusively by the Horse Racing segment.

Item 3.  LEGAL PROCEEDINGS

There are no material legal proceedings pending against the Company.  From time to time, the Company is party to ordinary and routine litigation incidental to our business.  We do not expect the outcome of any such litigation pending at this time to have a material adverse effect on our consolidated financial position or results of operations.

Item 4.  (REMOVED AND RESERVED)

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PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)           MARKET INFORMATION

The Company’s common stock trades on the NASDAQ Global Market under the symbol CPHC.  Prior to August 26, 2008, it traded on the American Stock Exchange under the symbol ECP.  The table set forth below indicates the high and low sale prices for the Common Stock in the quarterly periods ending December 31, 2009 and 2008.

(b)           HOLDERS

At March 11, 2010, the Company had 809 holders of record of its common stock.  In addition, on that date, a depository company held approximately 2,607,000 shares as nominee for an estimated 1,631 beneficial holders.

(c)           DIVIDENDS

The Company paid special cash dividends on its common stock of $.25 per share on July 11, 2008.  No special dividend was declared in 2009.

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(d)           SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth information as of December 31, 2009 regarding our equity compensation plans:

Securities Authorized for Issuance Under Equity Compensation Plans

(1) The Company does not have individual compensation arrangements involving the granting of options, warrants, rights or restricted stock.

(2) Adopted by the Company’s Board of Directors in 1997, the purpose of the Stock Option Plan for Non-Employee Consultants and Advisors is to attract and retain the services of experienced and knowledgeable non-employee consultants and advisors to assist in projects having strategic significance for the Company, to provide an alternative form of cash compensation to such persons and to provide such persons with the opportunity to participate in the Company’s long term progress and success.

(h)          PURCHASES OF EQUITY SECURITIES BY THE ISSUER

On January 16, 2008, the Company announced that its Board of Directors had authorized a program to repurchase up to an additional 250,000 shares of the Company’s common stock pursuant to Exchange Act Rule 12b-18 in open market transactions, block purchases of privately negotiated transactions.  During the fiscal year 2009, the Company did not repurchase any shares of common stock.  As of December 31, 2009, there are 33,457 shares that the Company may buy back as a result of this repurchase program.

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Item 6.  SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data for each of the five fiscal years ended December 31, 2009.  The operating and balance sheet data for the years ended and as of December 31, 2009, 2008, 2007, 2006, and 2005 are derived from our audited consolidated financial statements.  The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our consolidated financial statements and the related notes thereto included elsewhere in this report.

(In thousands except for per share amounts)

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Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Canterbury Park Holding Corporation, our operations and our present business environment.  This MD&A is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying notes to the financial statements (the “Notes”).  Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” and “Forward-Looking Statements” included elsewhere in this Annual Report.

STRATEGIC OVERVIEW

Canterbury Park Holding Corporation was incorporated under the laws of Minnesota and acquired land and buildings to conduct pari-mutuel horse racing operations in March 1994.  The Racetrack is located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis.  In May 1994, we commenced year-round pari-mutuel simulcast wagering operations and during the summer of 1995, we hosted the first annual live race meet.  Our live racing operations are a seasonal business as we host live race meets each year from May until late summer.  We earn additional pari-mutuel revenue by televising our live racing to out-of-state racetracks around the country.  We also derive revenues from related services and activities, such as advertising, admissions, parking and publication sales and from other entertainment events and activities held at the Racetrack.

In April 2000, we opened Canterbury Park’s card room.  The card room operates 24 hours a day, seven days a week and is limited by Minnesota State law to a maximum of 50 tables.  The card room currently offers a mix of both poker and table games up to this State maximum table limit.

Our three largest sources of revenues, card room operations, pari-mutuel operations and concessions sales, generate cash revenues.  Consequently, the Company is highly liquid and has not utilized its line of credit in over six years.

The primary strengths of Canterbury Park are our dedicated and capable staff, our first-class facilities and 380-acre property and the legal authority to offer our unique gaming products in our market area.

Our management team has extensive knowledge of the horse racing and card businesses and our staff has demonstrated a commitment to our customers.  We continue to implement improvements to our comprehensive customer satisfaction measurement and enhancement program.  Our management team has a good relationship with our workforce and is able to retain qualified personnel as demonstrated by our low turnover rate.

Our facilities are modern by racetrack industry standards, and we have invested heavily in the past few years to update and upgrade them to meet the needs of our customers and horsemen.  Our 380-acre property with a prime location on the edge of the Minneapolis — St. Paul metropolitan area in one of the fastest-growing counties in Minnesota provides us with great long-term growth and development opportunities.  Our Board of

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Directors is engaged in an evaluation of the highest and best potential uses of our underutilized land.  Our long-term strategic direction is to enhance the character of our property as a unique gaming and entertainment destination.

We have a strong commitment to live racing and have been particularly successful in attracting new customers and providing a quality live racing experience for our horse racing fans as well as the horsemen who enter their horses in live races at Canterbury Park.  The success of the card room has greatly enhanced our ability to offer a more competitive purse structure for live racing and has allowed us to make significant improvements to our Grandstand and the backside stabling and training facilities.  As a result, we have been near capacity for horses stabled at Canterbury Park during our recent live race meets.

We continue to believe that our best option for long-term growth is to gain authority under Minnesota law to offer additional gaming options, which would enhance horse racing with increased purses, provide growth and development opportunities and produce significant new tax revenues for state and local governments.  The effort to obtain legislative authority for these initiatives has required, and will continue to require, substantial expenditures.  Due to the inherent uncertainty of the outcome of legislative activities, there can be no assurance that any bills favorable to the Company’s interests will be enacted into law, and it is possible, as a result of the legislative process, that legislation directly or indirectly adverse to the Company may be enacted into law.

CURRENT DEVELOPMENTS

In January 2010, the Company began an extensive remodeling project in our card room.  As a result, the card room was moved to a temporary location on the mezzanine level on January 25, 2010.  The Company plans to reopen the card room in its original location in April 2010.  The remodeling project is being conducted to redesign and enhance virtually every aspect of the room, including the décor, entrance, location of the bathrooms, and even the chairs.  We believe our customers will find that the remodel will greatly enhance their gaming experience, which will result in increased revenues.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the consolidated financial statements are prepared.  On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with generally accepted accounting principles.  However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are included in Note 1 to our consolidated financial statements.  We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Property and Equipment - We have significant capital invested in our property and equipment, which represents approximately 75.1% of our total assets at December 31, 2009.  We utilize our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired.  Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected future net cash flows.  Should the sum of the related expected future net cash flows be less than the carrying value, we will determine whether an impairment loss should be recognized.  An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset.  To date, we have determined that no impairment of these assets exists.

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Stock Based Employee Compensation — ASC 718, Compensation — Stock Compensation (“ASC 718”), requires recognition of employee services provided in exchange for a share-based payment based on the grant date fair market value.  We utilize our judgment in determining the assumptions used to determine the fair value of options granted using a Black-Scholes model.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting Principles (“ASC 105”).  ASC 105 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernment entities in the preparation of financial statements in conformity with GAAP.  Rules and interpretive releases of the SEC under authority of federal securities law are also sources of authoritative GAAP for SEC registrants.  References to FASB guidance throughout this document have been updated for the Codification.

The Company adopted an update to ASC 805 — Business Combinations (“ASC 805”) on January 1, 2009.  ASC 805 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.  The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This update had no material impact on the Company’s financial position, results of operations or cash flows.

The Company adopted an update to ASC 820 — Fair Value Measurement and Disclosures (“ASC 820”) January 1, 2009 for non-financial assets.  ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurement.  ASC 820 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets.  Under ASC 820, fair value measurements are disclosed by level within that hierarchy.  The Company adopted ASC 820 for the fiscal year beginning January 1, 2008 for financial assets.  The adoption of ASC 820 and the update had no material impact on the Company’s financial position, results of operations, or cash flows.

The Company adopted an update to ASC 855 — Subsequent Events (“ASC 855”) on April 1, 2009.  ASC 855 provides guidance on when a subsequent event should be recognized in the financial statements. Subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet should be recognized at the balance sheet date.  Subsequent events that provide evidence about conditions that arose after the balance sheet date but before financial statements are issued, or are available to be issued, are not required to be recognized.  The date through which subsequent events have been evaluated must be disclosed as well as whether it is the date the financial statements were issued or the date the financial statements were available to be issued.  For non-recognized subsequent events which should be disclosed to keep the financial statements from being misleading, the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made, should be disclosed. The standard is effective for interim or annual periods ending after June 15, 2009.  The adoption of ASC 855 and the update had no material impact on the Company’s financial position, results of operations, or cash flows.

CONTINGENCIES

In connection with the purchase of the Racetrack, the Company entered into an Earn Out Promissory Note dated March 29, 1994. In accordance with the Earn Out Note, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) we begin to conduct off-track betting with respect to or in connection with its operations, we will be required to pay to the IMR Fund, L.P. the greater of $700,000 per operating year as defined, or 20% of the net pretax profit as defined, for each of five operating years.  At this time, we believe that the likelihood that these two conditions will be met and that we will be required to pay these amounts is remote.  At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles.  The purchase price will be

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further increased if payments become due under the “20% of Net Pretax Profit” calculation.  The first payment is to be made 90 days after the end of the third operating year in which off-track betting is conducted by us.  Remaining payments would be made within 90 days of the end of each of the next four operating years.

The Company is periodically involved in various claims and legal actions arising in the normal course of business.  Management believes that the resolution of any pending claims and legal actions at December 31, 2009 and as of the date of this report will not have a material impact on the consolidated financial statements.

OPERATIONS REVIEW

YEAR ENDED DECEMBER 31, 2009 COMPARED TO YEAR ENDED DECEMBER 31, 2008

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA, a non-GAAP measure, for the periods ended December 31, 2009 and 2008:

EBITDA represents earnings before interest income, income tax expense, and depreciation and amortization.  EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles (“GAAP”), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance, or cash flows from operating activities as a measure of liquidity.  EBITDA has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry.  Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do.

EBITDA decreased slightly as a percentage of net revenues to 5.9% for the year ended December 31, 2009 compared to 6.2% for the year ended December, 2008.

Total net operating revenues for the year ended December 31, 2009 were $39.6 million, a decrease of $6,436,824, or 14.0%, compared to total operating revenues of $46.0 million for the year ended December 31, 2008.  Total card room revenues decreased 16.7%, pari-mutuel revenues decreased 14.7% and concession revenues decreased 11.4% in fiscal 2009 compared to fiscal 2008.   Discussions of pari-mutuel and card room revenues follow.

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SUMMARY OF PARI-MUTUEL OPERATING DATA:

Pari-mutuel revenues include commission and breakage revenues on live on-track and simulcast racing, fees received from out-of-state racetracks for wagering on our live races and proceeds from uncashed winning tickets.  Pari-mutuel revenues decreased to $11.4 million in 2009 from $13.3 million in 2008, primarily reflecting a decrease in simulcast and on-track live racing handle in 2009 compared to 2008.

Total handle wagered on simulcast races in 2009 decreased $7,509,000, or 16.4%, compared to 2008.  The decrease is attributable to the severe recession and economic uncertainty that has adversely impacted discretionary spending on entertainment.  These conditions, which began in 2008, have continued to erode revenues throughout the fiscal year 2009.  In addition, the Company now faces direct pari-mutuel competition from Running Aces Harness Park (“Running Aces”), a harness track that opened in Anoka County in April 2008.  The Company also believes that an increasing number of Minnesota residents are unlawfully wagering on horse races by means of the Internet.

On-track live handle decreased by $1,667,000, or 12.0%, for the 2009 live meet compared to the live meet in 2008.  The decrease is partially due to the Company conducting 81 fewer races during 2009.  Also, the economic recession has adversely impacted discretionary spending on entertainment, which has also adversely affected on-track handle.

Wagering at out-of-state tracks on races conducted at the Racetrack during the 2009 live meet decreased $6,078,000, or 30.7%, compared to the 2008 meet primarily due to the severe recession and economic uncertainty prevailing throughout the country.  In addition, the Company conducted 81 fewer races during 2009, which led to a decrease in out-of-state handle.

Revenues recognized on proceeds from winning pari-mutuel tickets which were not presented for payment within one year of the end of the respective race meets decreased approximately $62,000 in 2009 compared to 2008, primarily due to reduced amounts wagered on simulcast horse races.

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The primary source of card room revenue is a percentage of the wagers received from the players as compensation for providing the card room facility and services, referred to as “collection revenue”.  Other Revenue presented above includes fees collected for the administration of tournaments and amounts earned as reimbursement for the administrative costs of maintaining the jackpot funds.  Card room revenues represent 50.9% and 52.5% of net revenues for 2009 and 2008, respectively.

The card room is divided into two areas, the poker area and the table games area.  The average daily collection amount per game is dependent upon the number of tables utilized to offer the game.  Patron demand determines the number of tables to be used for a specific game.

Total card room revenue decreased $4,045,000, or 16.7%, compared to 2008.  The decrease in card room revenue is due primarily to the decrease in poker revenue of $4,090,000, or 26.2%, in 2009 over 2008.  The decrease is attributable to the economic recession that has adversely impacted discretionary spending on entertainment.  The economic recession, which began in 2008, has continued to erode revenues throughout 2009.  In addition, the Company now faces direct card room competition from Running Aces, who began their card room operations on June 30, 2008.  The Company believes patronage at Running Aces card room has had a material adverse effect on the Company’s card room revenue.

We expect that competition from Running Aces, illegal Internet wagering, wagering at tribal casinos will continue to put pressure on card room operating revenues in future periods.  As a result, we continue to search for opportunities to make Canterbury Park the most attractive alternative when our customers want to wager on card games.

Concession revenues decreased $682,000, or 11.4%, compared to 2008.  The decrease is primarily attributable to the decrease in simulcast and card room patronage.  Additionally, there were five less live race days in 2009, resulting in decreased concessions revenues.

Other revenue increased $211,000, or 7.7%, to $2,952,000 in fiscal year 2009 compared to 2008.  The increase in 2009 was due primarily to an increase in special events that were held at the facilities.  Promotional allowances decreased $36,000, or 15.9%, to $192,000 in 2009, also as a result of decreased patronage of the card room.

OPERATING EXPENSES

Total operating expenses decreased approximately $5,947,000, or 13.1%, to $39,363,000 in 2009, from $45,310,000 in 2008 primarily due to decreases in purses and other pari-mutuel expenses, as well as reductions in several expense areas, including salaries and benefits and utilities.  See below for a detailed quantification of each of these items.  Total operating expenses as a percentage of net revenues increased slightly to 99.4% from 98.4% in 2008.  We experienced a considerable decrease in pari-mutuel and card room revenues in 2009. 

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As a result, despite decreases in variable expenses, such as salaries and benefits, and purse expenses, operating expenses became a larger percentage of total revenues.

Total purse expense decreased $1,418,000, or 19.5%, in 2009 compared to 2008 as presented in the table below.  As discussed in greater detail in Item 1(c) (iv) above, Minnesota law requires us to allocate a portion of funds received from betting in the card room and wagering on simulcast and live horse races for future payment as purses for live horse races or other authorized uses.  While most of these funds are paid into the purse funds for thoroughbred, quarter horse and standardbred races, Minnesota law requires that a portion of funds allocated for purses be paid into the MBF.  A description of how the purse expense was derived from these three sources and allocated for purse expense and to the MBF is presented below.  The decline in card room revenues in 2009 compared to 2008 resulted in the decreases in card room purse and MBF expense shown in the table below.  Total purse expense associated with simulcast racing decreased in 2009 compared to 2008 is primarily due to lower wagering levels, while purse expense associated with live racing decreased primarily due to conducting 81 fewer races during 2009, which further resulted in decreased on-track handle.

Under Minnesota law, the Company is required to pay 10% of the first $6 million of gross card room revenues towards purses for live horse racing at the Racetrack.  After meeting the $6 million threshold, the Company must pay 14% of gross card room revenues as purse monies.  Of funds allocated for purses, the amounts paid are allocated 90% to the purse funds and 10% to the MBF.

The amounts paid to the purse fund for simulcast racing differ depending upon whether the simulcast wagering occurs during the “Racing Season,” a statutorily defined 25-week period beginning in early May each year, or outside of the Racing Season.  We paid an average of 5.68% of handle to the purse fund in 2009, compared to 5.61% in 2008.  We pay 5.50% of pari-mutuel simulcast commission revenues to the MBF; consequently, lower revenues result in lower MBF expense.

We also experienced a reduction in host fees of $241,000, or 13.3%, in 2009 compared to 2008 due to lower wagering experienced in 2009 compared to 2008.

Salary and benefit expenses decreased by $2,930,000, or 14.6%, for the twelve months ended December 31, 2009 compared to the twelve months ended December 31, 2008.  The decrease in salaries and benefits expense is primarily attributable to savings achieved through a reduction-in-force that occurred in October of 2008.  Additionally, the suspension of the bonus program, contributions to the Company’s Employee Stock Ownership Plan (ESOP), and 401(k) match contributions, as reported in prior filings, have continued to provide cost savings.  To further contain costs, the Company implemented a wage freeze program in 2009.

Utilities expense decreased $329,000, or 23.3%, in 2009 primarily due to efficiencies provided by a new building management system and decreased prices for utilities.

Advertising and marketing expenses declined $163,000, or 10.9%, in 2009 primarily due to lower advertising agency and related fees resulting from increased use of internal resources.

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Net other income decreased $72,000, or 67.0%, in 2009 compared to 2008.  This decrease is primarily attributable to a $80,000 decrease in interest income on our primary bank account balance during 2009.

Income tax expense as a percentage of pre-tax income increased to 76.6% for the year ended December 31, 2009 from 46.8% for the year ended December 31, 2008.  The increase is primarily attributable to a reduced level of income before taxes while non-deductible lobbying expenses in 2009 remained relatively consistent with 2008.

Net income decreased $377,000, or 86.1%, to $61,000 for the year ended December 31, 2009 compared to $438,000 for the year ended December 31, 2008, reflecting substantially reduced revenues which were not fully matched by reduced expenses.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2009, we had unrestricted cash and cash equivalents of $4.7 million compared to $3.7 million at December 31, 2008.  This $1.0 million increase consists of $1.9 million net cash provided by operating activities and $0.4 million net cash provided by financing activities, offset by $1.3 million net cash used in investing activities.  In addition, as of December 31, 2009, we had $3.0 million of capacity under a commercial revolving credit line as part of a general credit and security agreement with Bremer Bank that will expire on June 30, 2010.  The Company plans to renew this credit line before it expires.  We had no borrowings under the credit line in 2009 or 2008.

Our three largest sources of revenue, pari-mutuel wagering, card room operations and concessions, are all based on cash transactions.  Consequently, we have significant inflows of cash on a daily basis.  We designate cash balances which will be required to satisfy certain short-term liabilities such as progressive jackpots, the player pool and amounts due horsemen for purses and awards as “restricted” as a separate balance sheet item.

The Company’s table games are required by law to be “unbanked”.  “Unbanked” refers to a wagering system or game where wagers “lost” or “won” by the host are accumulated into a player pool liability for purposes of enhancing the total amount paid back to players in any other card game.  The Company may only serve as custodian of the player pool.  It may not have an active interest in any card game and does not recognize net “wins” or “losses” as revenue.  The Company is required to return accumulated player pool funds to the players through giveaways, promotional items, prizes or by other means.  The player pool liability was approximately $156,000 at December 31, 2009 compared to $294,000 at December 31, 2008.

The card room offers progressive jackpots for poker games.  Amounts collected for these jackpot funds are accrued as liabilities until paid to winners.  At December 31, 2009, accrued jackpot funds totaled approximately $486,000 compared to $636,000 at December 31, 2008.  The MRC regulates the operation of the player pool and progressive jackpot pools.  These liabilities have the potential for significant fluctuation on a daily basis.

All games in the card room are played using chips.  The value of chips issued and outstanding, referred to as the “outstanding chip liability,” was approximately $191,000 at December 31, 2009, compared to $189,000 at December 31, 2008.  This liability has the potential for significant fluctuation on a daily basis depending upon the demand for chip redemptions and sales.

Our second largest individual operating expense item is purse expense.  Pursuant to an agreement with the MHBPA, we transferred into a trust account or paid directly to the MHBPA approximately $5,525,000 and $6,534,000 in purse funds for the years ended December 31, 2009 and 2008, respectively.  Minnesota Statutes specify that amounts transferred into trust are the property of the trust and not the Company.  Unpaid purse fund obligations due the MHBPA were $35,422 and $48,251 at December 31, 2009 and 2008, respectively.  The weighted average interest rates on any purses accrued but not transferred into the trust were 4.50% on both December 31, 2009 and 2008.

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The Company believes that unrestricted funds available in its cash accounts, amounts available under the general credit and security agreement, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations for the foreseeable future.

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash provided by operations during the year ended December 31, 2009 was $1,930,905, which resulted primarily from net income of $60,970 and depreciation of $2,094,174, offset by a decrease in card room accruals of $513,830.  The decrease in card room accruals was primarily as a result of there being more days accrued in 2008 for the dealer tips.

Net cash provided by operations during the year ended December 31, 2008 was $1,648,538, which resulted primarily from net income of $438,180, depreciation of $2,141,023, and a decrease in restricted cash of $771,340, offset by a decrease in accounts payable and accrued wages and payroll taxes of $846,969 and a decrease in card room accruals of $724,583.  The decrease in restricted cash and card room accruals was primarily as a result of an increase in player promotions that were offered in 2008.

CASH FLOWS FROM INVESTING ACTIVITIES

Cash used in investing activities for the year ended December 31, 2009 of $1,340,178 resulted primarily from upgrades to our grandstand for approximately and the purchase of equipment for our backside operations.  In addition, in 2009, the Company purchased investments of $500,000 that will mature at various dates in 2010 and 2011.  Regarding the extensive remodeling project to the card room that began in January 2010, the Company anticipates using cash on hand to fund the project and to avoid drawing on its line of credit.

Cash used in investing activities for the year ended December 31, 2008 of $2,332,048 resulted primarily from the purchase of a building management system and upgrades to the grandstand building and card room.  In addition, in 2008, the Company purchased short-term investments of $200,000 that will mature at various dates in 2009.

CASH FLOWS FROM FINANCING ACTIVITIES

Cash provided by financing activities was $404,739 for the year ended December 31, 2009 compared to cash used in financing activities of $2,621,148 for the year ended December 31, 2008. The 2009 cash inflow resulted solely from proceeds of $404,739 received upon the issuance of common stock due to the exercise of stock options and shares of common stock purchased by employees pursuant to our Employee Stock Purchase Plan.

Cash used in financing activities was $2,621,148 for the year ended December 31, 2008.  The 2008 net cash outflows resulted primarily from a $.25 per share cash dividend totaling $1,007,173 paid in July 2008.  In addition, throughout 2008 and pursuant to a Stock Repurchase Plan approved in January 2008, the Company repurchased 216,543 shares of common stock at an average price of $8.71 per share for a total cost of $1,886,034.  These outflows were partially offset by proceeds of $250,324 received upon the issuance of common stock due to the exercise of stock options and shares of common stock purchased by employees pursuant to our Employee Stock Purchase Plan and the related excess tax benefit of $21,735.

OFF-BALANCE SHEET ARRANGEMENTS

The Company currently has no off-balance sheet arrangements and has no intent to enter into any such agreements in the near future.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

In March 2008, the Company entered into a six-year totalizator service agreement with Scientific Games Inc.  Pursuant to the agreement, Scientific Games provides totalizator equipment and computer programs which record and process all wagers and calculate odds and payoffs.  In October 2008, the Company entered into a

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four-year service agreement to outsource its information technology (IT) function.  Amounts charged to operations under these agreements for the years ended December 31, 2009 and 2008 were approximately $644,000 and $377,000, respectively.

The Company has entered into operating leases for rental of office equipment, equipment to print certain publications, and track equipment to maintain the Racetrack.  Amounts charged to operations under these agreements for the years ended December 31, 2009 and 2008 were approximately $142,000 and $85,000, respectively.  All such leases expire on or before September 30, 2013.

Since December 31, 2009, there have been no material changes outside the ordinary course of business to our contractual obligations as set forth above.   As of December 31, 2009, we had no borrowings pursuant to our line of credit and were not party to capital lease obligations, significant purchase obligations or other long-term obligations.

FORWARD-LOOKING STATEMENTS

From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, we may make forward-looking statements concerning possible or anticipated future financial performance, prospective business activities or plans which are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions.  For such forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws.  Shareholders and the investing public should understand that such forward-looking statements are subject to risks and uncertainties which could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements.  Such risks and uncertainties include, but are not limited to: material fluctuations in attendance at the Racetrack, material changes in the level of wagering by patrons, decline in interest in the unbanked card games offered at the card room, competition from other venues offering unbanked card games, or other forms of wagering, competition from other sports and entertainment options, costs associated with our efforts to obtain legislative authority for additional gaming options, increases in compensation and employee benefit costs, increases in the percentage of revenues allocated for purse fund payments, higher than expected expense related to new marketing initiatives, the impact of wagering products and technologies introduced by competitors, legislative and regulatory decisions and changes, the general health of the gaming sector, and other factors that are beyond our ability to control or predict.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Canterbury Park is not required to provide the information requested by this Item as it qualifies as a smaller reporting company.

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Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)           Financial Statements

The following financial statements of the Company are set forth on pages 29 through 47 of the Form 10-K:

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Canterbury Park Holding Corporation

We have audited the accompanying consolidated balance sheet of Canterbury Park Holding Corporation (a Minnesota corporation) as of December 31, 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2009.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Canterbury Park Holding Corporation as of December 31, 2009, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Grant Thornton LLP

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Canterbury Park Holding Corporation

Shakopee, Minnesota

We have audited the accompanying consolidated balance sheet of Canterbury Park Holding Corporation and subsidies (the “Company”) as of December 31, 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the period ended December 31, 2008.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Canterbury Park Holding Corporation and subsidies as of December 31, 2008, and the results of their operations and their cash flows for the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2009 AND 2008